Monday, August 15, 2016

Four measures of real wage growth: pace of growth is decelerating

- by New Deal democratIn the last several years, I have written a number of posts documenting the stagnation in average and median wages, for example here and here. Several of the series were just updated for the first quarter, so now is a good time to take another look.We have a variety of economic data series to track both average and median wages:

The most commonly known measure is that of average hourly pay for nonsupervisory workers, which is part of the monthly jobs report.

The good news is that, with underemployment under 10%, we are generally continuing to see improved real wage growth compared with earlier in this expansion. The below graph tracks monthly average (mean, not median) hourly wages (blue), median wages from the employment cost index (red), real compensation per hour (brown), and median usual weekly earnings (green). All are adjusted for inflation. Since the quarterly index of median wages only started in Q1 2001, I have normed the indexes to 100 at that time:

Real compensation per hour did decrease in Q2. Otherwise, all 3 other measures are at highs since the turn of the Millennium.

Here is a longer term view. The ECI only started in 2001, but the other 3 go back in time at least into the 1960s:

With the exception of average hourly earnings (blue line), the other three are at or close to all time record highs. Real average hourly earnings, however, are still below their level for most of the 1970s.

Now let's look at the same information YoY. This tells us about the rate of growth:

The rate of YoY% growth peaked for all 4 series in the first half of 2015, and have shown decelerating growth since. This shows us how dependent real wage growth has been on the price of gas, since that has been the primary determinant of consumer inflation over the past 15 years.

Gas prices are probably close to bottoming if they haven't already, which suggests that the rate of YoY wage growth has probably peaked for this cycle, even though with just under 10% underemployment, we have yet to reach full labor utilization.

The Lifetime Income Security Solution

How to Achieve and Protect Your Financial Goals

The Lifetime Income Security Solution

This book provides a straightforward methodology to achieve and protect your financial goals. It not only explains why an income-based investment strategy is superior to active management but also how to utilize certain deferred compensation strategies to better time income recognition. Finally, there is an overview of a simple and realistic asset protection methodology that relies less on hype and more on an honest appraisal of asset protections true capabilities. Concise and conversationally written, this book is a must for high net worth individuals and investment advisers.